As we observe Martin Luther King Jr. Day, this edition of the Holiday Portfolio takes a quick look at the stocks already in the portfolio and adds a fifth stock -- the readers' choice -- to the list to debate and review throughout the year. Before we get started, let's review the ground rules.
The concept of the Holiday Portfolio is simple. I select a group of five stocks that I think deserve watching over the next 12 months, and I follow them -- regardless of their performance -- throughout the year. I revisit the portfolio on each market holiday and occasionally comment on the stocks on
Columnist Conversation. A stock is removed from the portfolio only if it merges with another company or ceases to trade on a major exchange.
The portfolio serves two purposes. First, it follows the fundamental progress of a group of stocks over a longer period of time. My hope is that the portfolio will serve as a forum for in-depth discussion of investment decisions and company strategy, and reinforce the importance of ongoing portfolio analysis. Second, it provides an opportunity to look at both short-term trading strategies and longer-term investment strategies with the same stocks.
So as you sit back and enjoy a day off, let's take a quick look at the stocks that make up the holiday portfolio and their performance out of the gate in 2005.
When a year starts off as slow as this one has for this group of stocks, you have to remind yourself that it isn't always the rabbit that wins the race. In fact, with our basket of stocks that's skewed toward the larger end of the capitalization spectrum, patience is a virtue.
With that said,
decline of more than 5% is a bit troubling. I still like this major pharma's drug portfolio, and notwithstanding continued concerns over Celebrex and some of the company's other advertising campaigns, this stock should find a way to rebound over the course of the year. Of course, that's assuming there is no other major revelation that might question the company's way of doing business.
I would add a bit more to the position at these levels, but I might also look for ways to hedge the downside using puts. One other strategy might be to sell calls above the original position price, creating a stream of income if you believe time is needed to rebuild investor confidence. As I wrote in
my New Year's column, this story will take time, but I believe that ultimately it will turn out to be the right call.
The other two laggards --
Equity Office Properties
-- are not as worrisome at this point. They seem to be trading consistent with the general market malaise. I like both not only for their leverage to the economy, but also for the protection their dividends provide.
In the case of Equity Office, there are signs of a slow but steady pickup in office space demand. That should benefit the company throughout the year, although it may be back-end-loaded. Also, management appears poised to do the right things to create long-term value for shareholders.
U.S. Bancorp continues to show signs of improving the quality of its commercial loan portfolio, and there should be some lending demand growth as the economy continues to improve. In addition, the company has been good at finding efficiencies that improve margins as it continues to integrate a number of mergers over the last several years.
The one company that has posted gains this early in the year is
Superior Energy Services
, an integrated energy services company with a focus on the Gulf of Mexico. From this company's deep relationship with
to its ability to provide an integrated suite of workover and stimulation services to other E&P companies in the Gulf of Mexico, I like Superior's growth potential in 2005.
Most estimates call for the company to earn about 90 cents in the coming year; I think results should be north of $1 per share. If that is true, the stock should rise to $20 or better in the course of the next 12 months.
That result doesn't include positive surprises from SPN Resources, the company's acquire-and-develop subsidiary that has a number of opportunities for new production and revenue in the coming year.
If SPN Resources can click on all cylinders, earnings could push $1.05 to $1.10 a share (run rate) in the next 12 to 18 months, providing more upside for the shares.
The short-term risk here is a pullback in commodity prices that would cause psychology to shift in the short term. But as I said
last week, that's an opportunity to buy the dips in the oil patch.
The Readers Speak
As with last year, the fifth stock in the portfolio this year comes from the readers. After nearly 100 unique suggestions, the most recommended stock (this is a democracy after all) was
Those of you who recommended it did so because you think the technology space will begin to show signs of life in 2005, and Microsoft is a major name in the group.
While I'm not convinced everyone who likes the name understands the dynamic differences between hardware and software companies, we'll make it work.
I, too, think Microsoft is interesting in 2005. While we are probably a year from a meaningful new product cycle, anticipation of new products combined with the cash position of the company makes it a benign play at worst for the portfolio. Of course, it also gives me a reason to dig into the company a little deeper.
So now it's your turn once again. Is Microsoft a good pick for this year's holiday portfolio? Vote in the poll below and send me your reasons (name and hometown, please) in an
email. We'll take a look and publish them in an upcoming holiday portfolio extra.
At time of publication, Edmonds was long Equity Office Properties, Pfizer, U.S. Bancorp and Microsoft, although holdings can change at any time.
Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to